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Canada: Growth in GDP slowed to 0.1% in Q4

Staff Writer |
Growth in real gross domestic product (GDP) in Canada slowed to 0.1% in the fourth quarter, the slowest pace since the second quarter of 2016.

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Real gross national income fell 1.0%, largely owing to lower export prices of crude oil and crude bitumen.

Final domestic demand was down 0.4% as investment continued to fall.

Annual growth was 1.8% for 2018, following a 3.0% increase in 2017.

In comparison, real GDP in the United States grew 2.9% in 2018.

The slowing of GDP in Canada in the fourth quarter mainly reflected a 2.7% drop in investment spending.

Exports of goods and services (-0.1%) also edged down.

These declines were largely offset by higher inventory accumulation, as businesses accumulated $12.5 billion of non-farm inventory following investment of $3.5 billion in the previous quarter.

The economy-wide stock-to-sales ratio increased from 0.825 in the third quarter to 0.840 in the fourth quarter.

Household spending slowed for the second consecutive quarter, edging up 0.2% in the fourth quarter following a 0.3% increase in the third quarter.

Outlays for services rose 0.5%, led by life insurance and financial services (+0.9%), while outlays on goods declined 0.2%.

Durable goods fell 0.5%, largely because of a 0.6% decrease in spending on motor vehicles.

Outlays for semi-durable goods declined 0.3%, while non-durable goods were flat in the fourth quarter.

Housing investment fell 3.9% as the market continued to soften, with the largest decrease in new construction (-5.5%), followed by renovations (-2.7%) and ownership transfer costs (-2.6%).

Overall business investment in non-residential structures, and machinery and equipment fell 2.9%, the sharpest drop since the fourth quarter of 2016.

Business investment in non-residential buildings declined 3.1%, while investment in engineering structures fell 4.3%, following a 3.1% decline in the previous quarter.

Machinery and equipment investment decreased 1.2%, after a 3.9% decline in the third quarter.

These declines were moderated by a 6.1% increase in business investment in intellectual property products, following a 1.8% decline in the previous quarter.

The increase was mainly attributable to mineral exploration and evaluation, which can be influenced by anticipated prices and potential new reserves.

On an annual basis, overall business investment rose 0.3% in 2018, despite a 2.3% decline in housing investment, which fell in tandem with higher interest rates and more stringent conditions for obtaining mortgages.

Export volumes edged down 0.1%, following a 0.8% increase in the previous quarter.

A 1.6% rise in services exports partly offset a 0.4% decline in goods exports.

Export were down sharply for forestry products and building and packaging materials (-3.2%).

Export were also down for metal and non-metallic mineral (-2.0%) and energy (-0.6%) products.

Increased exports of travel (+3.9%) and commercial (+1.8%) services more than offset lower exports of transportation services (-2.7%).

Import volumes were down 0.3% in the fourth quarter, after a 2.2% decline in the third quarter.

Imports of basic and industrial chemicals, plastic and rubber products (-4.6%) were down sharply.

Imports of motor vehicles and parts (-1.3%) and metal and non-metallic mineral products (-2.4%) were also down.

Imports of energy products were flat, while aircraft, engines and parts rebounded 17.1%.

Increased imports of travel services (+1.9%) and commercial services (+0.8%) pushed total service import growth to 1.2%.

Canada's terms of trade—the ratio of prices of exports to prices of imports—fell 3.6% in the fourth quarter, primarily because of a 34.3% price decline in crude oil and crude bitumen exports.

This was the largest terms of trade decline since the first quarter of 2009.

Lower export prices reduced corporate earnings, and gross operating surplus fell 5.4% (nominal terms), mostly in oil and gas industries.

Lower export prices led to a 1.0% drop in real gross national income (GNI), the real purchasing power of income earned by Canadian-owned factors.

This was the sharpest decline in real GNI since the first quarter of 2015 (-1.5%).

The GDP implicit price index, which reflects the price of domestically-produced goods and services, fell 0.8% in the fourth quarter, after rising 0.6% in the third quarter.

A 1.2% rise in compensation of employees (nominal terms) boosted household disposable income (+0.8%); this, coupled with lower nominal household final consumption expenditure, resulted in a small increase in household savings and the household saving rate (+1.1%).

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